The tight requirements that traditional mortgage lenders and banks impose on borrowers creates the need for private and hard money mortgages. Private money lenders offer mortgages that are easy to obtain and remove the red tape associated with traditional mortgage lending.
Sadly, most real estate owners and borrowers remain blinded by the numerous myths and misconceptions about private money loans and hard money lenders. Believing the falsified information may hold you back from applying for a private money loan. This article focuses on separating the facts from the myths to help you scale up your real estate business.
1. Private Money Loans are Too Risky
Some borrowers mistakenly believe that private money lenders are not as cautious as conventional banks.
It’s true that hard money lenders are not as bureaucratic in the approval of loans as banks, but it does not mean that they will fund just any investments. They are less likely to approve loans that may burn the lender’s and borrower’s fingers. The private money lenders will take the time to evaluate your project to ensure your success.
2. Hard Money Loans Only Appeal to Desperate Borrows
Another misconception is that private and hard money loans are only for borrowers with no other options. Private money lenders may overlook your bad credit history and instead focus on the value of the property. However, most lenders-like GW Private Capital- have their share of loyal clients with good credit history and assets that would be considered bankable. The faster approval processes, responsiveness, and ability to fund certain property types make private loans attractive even to borrowers with perfect credit scores.
3. Private Money Lenders Are Predatory
Some real estate investors wrongly assume that private and hard money lenders are after their property. The investors falsely believe that the lenders want the deal to fall through so that they may pick up the property at discounted prices. This is far from the truth. Reputable lenders are only after the guaranteed interest payment that you make on the loan provided. Most private financiers will discuss an exit strategy with you. You may refinance with another hard money loan, seeking a conventional loan, applying for a subprime loan. The exit strategy protects you and your lender’s asset within the agreement.
4. Private Money Loans do Not Need Any Documentation
Another common myth is that private lenders offer no-documentation loans. While they may be more lenient than conventional banks, the bare essentials for borrower’s qualifications still apply. One of the most important documents you will need is an appraisal valuation report. The lender may also ask for government-issued identification, a title report, title insurance, and a rehab budget for the property.
5. Private Money Lenders Are Loan Sharks
Some borrowers have an outdated notion that private money lending works the same way as loan sharks. Currently, billion-dollar hard money financiers are operating legitimate loan programs just like conventional banks. In California, private and hard money lenders must obtain a license from the California Bureau of Real Estate. Always confirm that you are working with a certified financier, demanding to see a valid license.
Private money lenders can help you streamline your cash flow problems in your real estate business. Now that we have demystified the truth from the misconceptions, do not fear to seek private loans to expand your business. You may also call GW Private Capital to learn more about private hard money loan programs.